Tuesday, January 5, 2010

Schumpeter's Century

This essay of mine from The American Interest (November-December 2007) provides some of the conceptual background for The Coming Prosperity, as well as the title for my innovation policy blog, with Brian Higginbotham. Here's how it starts:
The history of the 20th Century is invariably told as a political and military narrative: the battle of world’s democracies first, with the Soviets, to defeat fascism and second, against the Soviets, to defeat communism. Far less well appreciated, but arguably more relevant to the present, is the economic subtext of the same history: the rise and (partial) fall of large-scale, centralized production.

... The real power of Schumpeterian analysis for today’s readers, and the focus of this essay, comes in its application to the period from Schumpeter’s death in 1950 to the present. What really caused the collapse of the Soviet Empire? Not Ronald Reagan. How does the threat of Islamic Fundamentalism today compare with the threat of Fascism in the 1930s or Communism in the 1950s? From the standpoint of economic fundamentals, it doesn’t. What is the key to China’s sustained economic growth? Not cheap labor...

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